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Originally Posted by braisler
Also as the point was raised earlier, if the VAT reduced businesses costs for these items they might costs only marginally more.
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I think what you are referring to is the assumption that the elimination of corporate taxes would lead to higher wages and therefore the increased tax burden for everyone is not noticed. This assumption is so flawed because it is built on many other flawed assumptions.
Look at the current system. Let's assume that the govt collects a total of $20. Say $15 of that comes from the people via income taxes and the other $5 comes from corporate income taxes (don't pay attention to the percentages). The government still needs the $5 because the agencies in charge of collecting that $5 make up a negligible portion of the government's budget. Therefore, the government needs to collect $5 more from the people. There is almost zero change in the revenue and total amount of taxes collected.
The fundamental basis of the arguement stated is that the people's incomes will increase enough so that they don't notice the change in taxes. I'm sorry but that would NEVER happen. There is no way in hell that ALL of that money would go directly back to the people. Many supporters of the idea use 25% as the level of corporate income tax so I will too.
Take WalMart as an example (because I love to villianize them). Once their taxes are gone they now have an extra 25% to do whatever they want with. What is their motivation to give all of that back to the people? No supporters of this idea have tried to knock this down.
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Originally Posted by braisler
Another benefit of the VAT system is that it is possible to largely reduce your personal tax burden if you so choose. Say that I am a thrifty person of middle income (which I happen to be). I would like to save more of my money for retirement and reduce my current tax burden. Easy... I just spend less on taxable items.
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That is the fundamental flaw with a VAT system. As citizens of this country I believe that EVERYONE is required to make the "same" contribution to this running of the country. I don't think it would be fair for someone to decide that they don't want to pay taxes and then be legally able to do so by not buying any taxable items. The money that needs to be collected gets shifted to everyone else. What if everyone decided to buy as few taxable items as possible? Not only would it wreck the government's income generation but it would also destroy the economy because nobody is buying the taxable goods.
The whole system discourages consumption and that is not the way to have a healthy economy.